Pixilated property dispute a real issue in court

In "Second Life," your character can buy new clothes, a new body, or a custom car. The transactions have real-world value, and courts are beginning to deal with virtual disputes.
(Ken Millstone/CNS)

Hockey jerseys are among the many products "Second Life" users can buy to customize their characters. One U.S. dollar is worth about 270 "Linden dollars" in the game.
(Ken Millstone/CNS)

Marc Woebegone, a real estate speculator, bought several parcels of land at below-market prices in 2005. The authorities seized the land and put Woebegone out of business. Woebegone sued, saying the land was rightfully his. The case is now before a U.S. District Court in Pennsylvania.

The problem for Judge Eduardo Robreno is that the land doesn’t exist, and neither does Marc Woebegone. At least, not in this world.

Marc Woebegone is actually Marc Bragg, an attorney in West Chester, Pa., and the land-deal-gone-awry took place in a virtual realm called "Second Life."

"Second Life" is an online world with the interactive 3-D graphics of a video game. Its creators don’t consider it a game because there is no objective and no way to win. Users simply link in through a special program and spend time interacting with others in the virtual community.

It is a living--and changing--world, where players can own property, run businesses and mingle in settings ranging from picnics to strip clubs. "Second Life" has around 300,000 regular users, with roughly 25,000 online at any given time.

With a credit card, players can buy virtual currency to use in "Second Life." (The unit is the Linden dollar, named for the game’s developer, San Francisco-based Linden Lab.) Then they can spend their Linden dollars in a free-market economy. For instance, some people make clothes, sell them and earn Lindens from the transaction. Players can cash out to real money whenever they want to. The exchange rate hovers around 270 Lindens to one U.S dollar.

Bragg bought $8,000 worth of "Second Life" real estate, relying in part on a Web cheat that let him bid on the property before others could. When Linden found out, it took back his virtual holdings and closed his account. Bragg recovered $3,000. Game over.

Disputes like Bragg’s have presented new legal questions about who owns what online and given rise to a new legal specialty: virtual property law.

“It’s a fundamental tension between the developers who want to say that you don’t own anything and the players who want to say that you do,” said Jason Archinaco, who is representing Bragg in court. “Does [Bragg] own the land? . . . In terms of precedent, this is really one of the first cases in the world to decide the issue.”

Linden claims in court documents that Bragg has painted himself as a "Second Life" amateur when in fact he was a savvy user who discovered an illegitimate back door to the auctions. He cheated, and Linden had the right to seize his virtual property under the user agreement that Bragg “signed” with a click of his mouse when he joined the site.

That’s where things get sticky.

“We all know that there’s this agreement that nobody reads,” said Peter Ludlow, a professor of linguistics and philosophy at the University of Michigan and the editor of the Second Life Herald, an online news source. “And we also know that there’s this huge marketing campaign by Linden Lab that talks about owning property and making real money.”

Courts will have to decide which side prevails.

Click-through agreements are generally enforceable under existing case law, even if users don’t read them, said Greg Lastowka, a law professor at Rutgers University and an expert in virtual realms. But courts can decide not to enforce contracts they deem unfair or unreasonable.

“If you read the most recent terms of service, it seems to say that one second after you convert your U.S. currency into Linden dollars, one second after, they can take it,” Archinaco said.

Linden Lab created "Second Life" last year as an entry into a growing field of online worlds like Sony Online Entertainment's "EverQuest II" and Blizzard Entertainment's "World of Warcraft." In those games, characters fight enemies to earn more powerful swords and spells. Players quickly discovered that they could sell the items on eBay for real money.

Those transactions worldwide are estimated to total $1 billion annually, but so far they have taken place on an unregulated black market. "EverQuest" and "World of Warcraft" make their money from charging users a monthly fee, and their user agreements state that everything in the games belongs to the parent companies. That model has so far prevented cases like Bragg’s.

Then "Second Life" came along with a novel idea: embrace the market and take a cut of the action. No user fees, just exchange fees and auctions to buy land. And, yes, there are property taxes.

Whereas in earlier games, users could only acquire items, in "Second Life" they can design and sell them. New users show up in "Second Life" with one of a few basic looks for their avatar, or online character. If they want to customize, they can buy everything from new clothing to a new head or body. Then they can buy a house, furniture, paintings for the walls and a space ship to cruise around in. All that content is generated by other users, who create it using Linden’s proprietary software. It takes some programming savvy, but not much. And while the products may not be real, the profits can be.

“There are people with huge amounts of assets wrapped up in these virtual platforms,” Ludlow said. "Second Life" minted its first real-world millionaire late last year: a virtual real estate developer known in the game as Anshe Chung.

“As the values involved here get larger, we’ll probably have more player-versus-player disputes,” Lastowka said. “And we’ll have more complaints about the nature of the contracts that the companies force you to sign.”

The Bragg case is now eight months old, and the sides are still exchanging preliminary motions. Earlier this month, Linden moved to force the sides to meet for out-of-court arbitration in California.

But a Harvard Law School class has already decided the case in a mock trial. The “jury” found that Bragg had employed questionable business practices but that he owned the property and deserved compensation from Linden.